SEOUL: South Korea will lower its growth forecast for 2016 in the face of an economic slowdown in China, the country’s top export market, Seoul’s top economic czar said in an interview released online by the Wall Street Journal on Friday.
On the sidelines of the Group of 20 finance ministers meeting in Ankara, Finance Minister Choi Kyung-hwan told the news outlet that South Korea’s growth rate will be revised down to 3.3 per cent for next year from the 3.5 per cent estimate made in June.
The downgrade will be reflected in the government’s 2016 budget that will be announced next week and is due to increasing risks of a Chinese slowdown, he said. Lowering the growth target is expected to impact the size of the national budget because policymakers are trying to control the country’s fiscal deficit in the face of weak tax earnings.
Choi, who doubles as deputy prime minister in charge of economic policymaking, however, said the government is sticking to its 3.1 per cent growth target for this year. He told the journal that South Korea is trying to achieve this year’s target by making full use of the central bank’s policy rate cuts and the 11.53 trillion-won (S$13 billion) supplementary budget aimed at propping up growth in the aftermath of the Middle East Respiratory Syndrome outbreak and a sharp drop in exports.
MERS, which left 36 people dead, sapped consumer spending, while South Korea’s exports nosedived 14.7 per cent on-year in August and were down 6.1 per cent for the first eight months of the year.
The drop is closely linked to weakening global growth and trade, as well as fewer products being sent to China, South Korea’s No. 1 export market. Exports to China fell 8.8 per cent in August compared with the year before.
Choi said that because of the interlinkage between South Korea and China, a sharp deterioration of the Chinese economy will have an “extremely huge impact” on South Korea. The minister, on the other hand, did not think Beijing is heading for a hard landing because it has the capability to manage a soft landing.
Choi called on the US Federal Reserve to make more efforts to reduce uncertainties over its expected interest rate increase, by communicating more with the market. On concerns that a US rate hike will cause an exodus of funds from South Korea, the policymaker claimed such a development is not likely.
“There is almost no risk of Asia’s fourth-largest economy experiencing the kind of capital flight it saw during the height of the Asian financial crisis in the late 1990s and the more recent global financial meltdown in 2008,” he said.
He stressed Seoul has made changes that can better insulate the country from external shock, such as increasing its foreign currency reserves and reducing dependency on short-term foreign loans.
